Budgeting Tips and Guidelines

Most people say they're surprised when they first create an income-and-expense report and can clearly see all the easily forgotten expenses. Remember, when you're looking at your spending, there are no inherently bad expenses, and your expense pattern will be very personal and unique. Examine your income-and-expense report for expenses on things that hold little value for you, and minimize that spending. Know why you spend. Understanding your habits and reasons for spending will help you allocate your resources toward your goals — the things you think are important.


Once you've worked on planning your fixed- and variable-expense money baskets, the biggest budget-busters are no longer a threat. But your money baskets won't be fully funded overnight. Managing the big budget-busters until you've accumulated your emergency and other baskets is important to your final success.

Many people grow frustrated by their income-and-expense plan because they make it too complex to stick with. Once every few years, they spend a lot of time setting up a plan, calculating their expenses and drilling down into very fine detail. They set up their baskets or another similar plan, and they start. But problems arise when they get too busy to revisit their plan and make adjustments. They underestimate a particular expense and don't readjust their money baskets. Or they borrow from one basket to cover another and don't ever get back to readjusting the baskets. Before they know it, they're falling behind in their tracking and can't get caught up.

How do I get the budget to balance if my total expenses are more than I make?

Everyone lives on limited resources, no matter how rich they may seem. Be sure you're spending on what's important to you. Check your list and see if there's anything you can reduce. Entertainment, vacation, and holiday spending are places people often find they can cut back.

Don't fall into this trap. Make your baskets as simple as possible. No matter how carefully you research your expenses, you won't have everything perfect the first time. Allow room in this initial money basket plan for missed or misestimated expenses.

Baby Steps

A goal may be to put aside money for your young child's college education, but your budget, with the new expenses of a child, is too tight to start. Start a money basket for their current expenses (day care, diapers, etc.) and plan to reallocate those expenses to a college savings plan as they decrease. You may also find that you don't need to use an amount equal to all of their current expenses to meet the college goal. If your child is older and you don't have the expenses of a newborn, but the school and sports fees are in your budget, think of continuing to set aside that amount toward tuition once the kids move on to college.

Keep total housing costs (mortgage or rent, real estate taxes, and insurance) below 30 percent of your after-tax income. If your income is relatively low, try to get housing down to 20 percent of your take-home. Remember, you need to have money to save for retirement and emergencies — becoming “house poor” isn't the way to do that.

Saving on a Modest Income

Money baskets and savings goals work well whether your income is high, moderate, or low. The real trick is managing within your resources and being clever about stretching them if your income is relatively low. Take a close look at what you spend your money on. Are you spending to meet your goals, or are you spending to appear more affluent than you are? Beware of trying to keep up with the Joneses!

Working a good budget on a low income takes extra finesse and attention. Work through your budget first and be sure you're not spending on anything you don't value. Next, check your regular expenses to see if there is any way to reduce the cost of each. Here are some things to think about:

  • Compare prices online versus what you pay in the store.

  • Are there any brand changes you can make to save money?

  • Are you paying extra fees on banking, check cashing, investment accounts, or credit cards because of late payments, overdrafts, or sales charges?

  • Can you change your utility payments to a budget program so that the monthly cost is always the same?

  • Would a cell phone only rather than a cell phone and a landline save money? Do you need a cell phone, or just an emergency phone with prepaid minutes?

  • Do you buy food your family doesn't eat? Can you adjust the menu to less-expensive whole foods rather than prepackaged foods?

  • Don't ignore your health. Quitting smoking, losing weight, and planning regular dental and health care visits are more important to a balanced budget than you would think.

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    4. Budgeting Tips and Guidelines
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